Pell Grant Funding: House vs. Senate Proposals for 2012

How Congress will fund the fiscal year 2012 Pell Grant is finally starting to come into focus. While fiscal year 2012 officially began on October 1, 2011, Congress still hasn’t finalized any appropriations funding for the year – and when it does, it will likely be through an omnibus appropriations bill covering every federal agency later this year. In the meantime, lawmakers passed a continuing resolution to keep agencies and programs operating at fiscal year 2011 levels until they enact a final year-long bill. Last week, both the House and Senate gave a few hints as to how they are likely to fund the 2012 Pell Grant in that final year-long bill, whenever it emerges. This, of course, refers to the fiscal year 2012 Labor-HHS-Education appropriations bills released in each chamber late last month.

Before we discuss the details of each plan, let’s remember where the Pell Grant program stands. Though Congress has provided new rounds of ad-hoc funding since the American Recovery and Reinvestment Act of 2009 increased the maximum grant level, the new grant level has put the program on the edge of a funding cliff year after year. Back in 2010, Congress made new funding available after lawmakers eliminated the guaranteed student loan program. That funding plugged a hole in the program that emerged after the program used up two years’ worth of supplemental funding from the 2009 stimulus inone year. Then in the 2011 appropriation finalized back in April, Congress ended the “year-round” Pell Grant to reduce costs and keep the maximum grant at the sacred $5,550 level achieved via the 2009 stimulus.

Ever since then, lawmakers have been staring down the fiscal year 2012 grant – which will fund the grant for the 2012-2013 school year – knowing that they would again have to come up with another dose of supplemental funding ($11.3 billion) or cut the maximum grant by something close to $1,000.

No problem.

In August, Congress ended the interest-free benefit on subsidized federal loans for graduate students when it passed the Budget Control Act of 2011 (i.e. the debt ceiling agreement) and put $10 billion of those savings into the fiscal year 2012 Pell Grant. Another $7 billion of the savings will go to the 2013 grant.

So, if Congress wants to maintain the current maximum Pell Grant of $5,550, it must appropriate $24.3 billion for fiscal year 2012, up $1.3 billion from fiscal year 2011. The Labor-HHS-Education bills released in the House and Senate last month reach that number in very different ways, leaving plenty of room for a compromise in whatever omnibus bill Congress finally passes for fiscal year 2012.

The Senate bill (S. 1599) would appropriate the full $24.3 billion to maintain the maximum grant in the 2012-13 school year. The bill provides a regular appropriation of $23 billion for Pell Grants in 2012, plus a supplemental $1.3 billion. The supplemental funding is offset (i.e. paid for) by a provision in the bill that ends the interest-free benefit on Subsidized Stafford loans during an undergraduate borrower’s six-month grace period after leaving school. That provision produces additional savings, so the bill allocates an additional $1 billion to support the 2013 Pell Grant and another $3.5 billion for the program over the five years from 2017 to 2021.

The House, on the other hand, doesn’t add supplemental funding to the program, and actually cuts funding compared to fiscal year 2011 – but the bill would still maintain the maximum grant of $5,550 in the 2012-13 school year. It does so by making significant changes to Pell Grant eligibility rules, thus lowering the cost of the program to require a $20.7 billion appropriation in 2012 to maintain the maximum grant.

These changes include a reduction in the maximum number of semesters a student can receive a Pell Grant from 18 to 12, an elimination of Pell Grant eligibility for students that are attending school less than half-time, a reduction in the amount of a student’s personal earnings that can be excluded from a Pell Grant award calculation, and a cut to the maximum family income that would automatically qualify a student for the maximum grant from $30,000 to $15,000. The proposal would also end Pell Grant eligibility for students who qualify for less than 10 percent of the maximum grant. For a complete comparison of the current Pell Grant eligibility rules with the changes proposed in the House, click here [updated].

All of these changes would lower the appropriation needed to fund a maximum grant of $5,550 by $3.6 billion in 2012 and about $4.0 billion each year thereafter because fewer students would be eligible for grants and some students would receive smaller grants than they otherwise would have. The changes also generate savings in the portion of the Pell Grant funded on the mandatory (i.e. entitlement) side of the budget totaling $5.7 billion over 10 years. A portion of the Pell Grant (currently $690 of the maximum grant) is funded as an entitlement that every grant recipient receives and does not require an annual appropriation. Therefore, changes to eligibility rules automatically lower the cost of this funding stream each year over a 10-year budget window because fewer students will be eligible for the grant and some student will get small grants. The House would not reallocate the savings that arise on the mandatory side of the budget as Congress did when it ended the year-round Pell Grant in the 2011 appropriations bill. Instead, those savings would go to reducing the size of the federal deficit in future years.

To put it bluntly, the House and Senate are about as far apart as possible on how to fund a maximum Pell Grant of $5,550 in the fiscal year 2012 appropriations bill. Just about the only thing they agree on is a maximum grant of $5,550. The two chambers probably won’t reach a compromise for a few months. In the meantime, we’ll have more on the implications that the two proposals would have for students.

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